2000 Investor Limit: What It is, How It Works, Example

What Is the 2000 Investor Limit?

The 2,000 Investor Limit is a stipulation required by the Securities & Exchange Commission (SEC) that mandates a company that exceeds 2,000 individual investors, and with more than $10 million in combined assets, must file its financials with the commission. According to SEC rules, a company that meets these criteria has 120 days to file following its fiscal year's end.

Understanding the 2000 Investor Limit

The 2,000 investor limit or rule is a key threshold for private businesses that do not wish to disclose financial information for public consumption. Congress raised the limit from 500 individual shareholders in 2016 as part of the Jumpstart Our Business Startups (JOBS) Act and Title LXXXV of the Fixing America’s Surface Transportation (FAST) Act. The revised rules also specify a limit of 500 persons who are not accredited investors before public filing is required.

The prior threshold had been 500 holders of record without regard to accredited investor status. Congress began debating an increase in the limit in the wake of the 2008 recession and an explosion in online businesses (some of which complained that they were growing so fast that the disclosure rules had become a burden at too early a stage of their lifecycle). 

The JOBS Act also set up a separate registration threshold for banks and bank holding companies, allowing them to terminate the registration of securities or suspend reporting if that class of shares is held by less than 1,200 people.

Investor Thresholds and Equity Crowdfunding

The JOBS Act revisions to SEC rules helped facilitate the growth of crowdfunding platforms. These platforms are able to raise money from individual investors online without providing detailed financial data. The rules established limits on how much individuals can invest in SEC-approved crowdfunding platforms as a percent of the lesser of their annual income or net worth. 

The individual limits for crowdfunding, through an investment portal approved by the SEC, as of May 2017: 

• If either your annual income or your net worth is under $107,000, during any 12-month period, you can invest up to the greater of either $2,200 or 5 percent of the lesser of your annual income or net worth. 
• If both your annual income and net worth are $107,000 or more during any 12-month period, you can invest up to 10 percent of your annual income or net worth, whichever is less, not to exceed $107,000. 

These calculations don't include the value of your home.

Example

For example, suppose that your annual income is $150,000 and your net worth is $80,000. JOBS Act crowdfunding rules allow you to invest the greater of $2,200—or 5% of $80,000 ($4,000)—during a 12-month period. So in this case, you can invest $4,000 over a 12-month period.